Ukraine is going to coordinate its socioeconomic policy in Sevastopol with Russia. It is the head of state, Viktor Yanukovych, who has made this sensational statement. “It will be perhaps fair if we make a deal with our Russian colleagues to pursue a joint socioeconomic policy in this city, particularly, as far as remuneration of naval servicemen is concerned,” the president said, hinting that Ukrainian servicemen’s salaries will be raised to the level of what their Russian counterparts are paid. He explained that “the two navies – Ukrainian and Russian – are establishing normal relations.” This raises a logical question: have they not been normal in the past 21 years?
This statement coincided in time with another important event – Ukraine’s ratification of the agreement on free trade with CIS countries – which followed the passage of a language law popularly dubbed as “struggle for the great and powerful Russian language.”
What do all these elements of a big political game in the economic sphere mean? Will they eventually slow down integration into the EU?
All the more so that the CIS free trade agreement is in fact supposed to deepen economic integration between its signatories. This will in no way affect relations with the EU, says Valerii Muntiian, a special governmental spokesman on cooperation with Russia, CIS member states, EurAsEC, and other regional associations. He explains that Ukraine will only reap an economic benefit from closer trade relations with the CIS – even now trade with the Commonwealth of Independent States accounts for 42 percent of this country’s total commodity turnover, and if this cooperation intensifies, this will increase Ukraine’s foreign trade by an annual 30-35 percent, whereas trade with EU countries accounts for just 28 percent of the Ukrainian foreign trade turnover.
Meanwhile, either in gratitude for Ukraine’s pliability or thanks to professionalism of the Ukrainian government’s economic negotiators, Russia has taken a step to meet Ukraine halfway – it has allowed this country to export 150,000 tons of duty-free pipelines in the second half of 2012.
The Day has asked experts whether the latest show of respect for the Kremlin means changing the economic course or the political guidelines.
“RUSSIA EXCLUSIVELY PROMOTES ITS POLITICAL, NOT ECONOMIC, INTERESTS”
Volodymyr LANOVY, economics minister from March 5 to July 11, 1992; president, Market Reforms Center:
“The Russian side considers inviting Ukraine to enter the so-called free trade area as nothing but an attempt to adapt our state to a gradual political integration. In other words, the economic course is being changed under the influence of political guidelines. Let us face it: Russia exclusively promotes its political, not economic, interests. This agreement does not call for the opening of new trade channels or the expansion of commodity, services, and capital markets. This means that the agreement envisages nothing that could be considered as a sign of the integration of markets. There are no cross-border regulation provisions that could promote the expansion of commodity exchange. The first articles of the agreement say that relations between the two parties, as far as customs regulation, border crossing, and the removal of barriers to the movement of commodities are concerned, will remain as they were at the moment this agreement was signed. In other words, the agreement on free trade with the CIS brings about no radical changes in the rules of trade. There was simply a banal change of political interests. Yet there is a small plus: the two sides promise not to set up barriers unilaterally (for Ukraine, this means that the supplies of pipelines to the Russian market will not abate and the duty on sugar will not be raised). But is this free trade? Moreover, before signing this agreement, Russia not only joined the WTO on the conditions that are unfavorable for Ukraine (and we did not even argue about this), but also raised export duties with respect to 109 commodity groups. Therefore, there have been no real steps to bring the two economies closer. Just the contrary, Russia has restricted the export of its goods in order to meet domestic market needs.
“I do not share the optimism of my colleagues that Russia will make concessions as to the free transit of energy resources from other countries across its territory. It will never forgo its monopoly right of transit. So the promise to sign a new treaty six months after the CIS free trade agreement has come into force is pure fiction. The Russian side will not be fulfilling this. Therefore, Ukraine should orient itself towards cooperation with the EU. Signing the CIS free trade area agreement will in no way affect the relations with Europe. It is better for Ukraine to cooperate with Europe because this will create new possibilities and stimuli to modernize Ukrainian production facilities and increase the quality of our products. As for Russia, it is only interested in a political integration based on its partners’ economic concessions. In my view, what should become now the main engine of an accelerated economic integration into Europe is Ukrainian big business which is closely tied with the authorities, for it is mostly interested in European markets.”
“IT IS A STEP TOWARDS THE CUSTOMS UNION AND THE EURASEC, BUT IT IS NOT TOO LATE TO VEER OF THIS COURSE”
Viktor SUSLOV, economics minister from July 25, 1997 to April 21, 1998:
“The official ratification of this agreement means that Ukraine has taken a course for economic rapprochement with Russia. In legal terms, the approval of the treaty by the head of state does not run counter to the signing of a free trade area agreement with the EU. But, in practical terms, there is also a political component. Many observers have called, aptly enough, the signing of a treaty with the CIS an obligatory step for Ukraine’s future membership in the Customs Union and perhaps the Eurasian Economic Community. Therefore, signing the CIS free trade area agreement is a step towards the Customs Union and the EurAsEC, but it is not too late to veer off this course. We might as well stay clear of any unions.
“Still, intensifying cooperation with the CIS is important for Ukraine’s economy. Whatever you say, the CIS member states are our main foreign trade partners to which Ukraine sends a major share of its exports and from which it receives a considerable part of its imports. Although they are our main trade partners, we should not develop relations with them for political reasons only, as this may adversely affect the economy. We should seek a rational compromise. Failure to ratify the CIS free trade agreement might have resulted in a considerable economic slump because the other side could have imposed a number of restrictions on Ukraine.
“There is also a lot of talk about the energy-related side of the agreement. In the long term, this can mean lifting the export duty on oil and gas as part of the Customs Union arrangements. It is Belarus and Kazakhstan that are reaping benefit from this today – they are buying gas for 164 dollars per 1,000 cubic meters. At the same time, it should be clear that there will be no concession like this unless we join the Customs Union.
“Once the free trade agreement comes into force, Ukraine will begin drawing up the text of a supplementary agreement on the conditions of oil and gas pipeline transportation in the CIS. In other words, Ukraine will be able to open the way for Asian gas supplies to its market. But we should be very careful here because free transportation of gas from Central Asia does not yet mean that it will be bought for a song. It is quite possible that Asian countries will set the same prices as Russia does. So how much will this gas cost if we add the transportation expenses? I have no doubts that they will charge Ukraine the same gas transit fee as Ukraine does to Russia. And the distance from Asia to Ukraine is thousands of kilometers. Add to this the not-so-clear gas prices. No one knows how much this will be. It is high time to ponder over this arithmetic. In my view, we have no alternative but to draw closer to the CIS. The prospects of EU integration are not so rosy: after the free trade area had been set up, our exports to and imports from the EU rose by 10 and 15 percent, respectively. As before, we will be mostly exporting raw materials and importing finished items.”
“MOST OF THE DIRECT AND IMPORTED INVESTMENTS COME FROM EU COUNTRIES”
Anatolii KINAKH, economics minister in 2007; president, Ukrainian League of Industrialists and Entrepreneurs:
“Exports account for about 50 percent of this country’s total GDP. It is important for exporters to find new market not only on the East, but also in the West. It is positive that the agreement with the CIS was ratified at last and the EU free trade area agreement was initialed. But let us not forget that there is a difference between these trade vectors. In 2011 the shares of the CIS and the EU in Ukrainian exports were almost 70 and 30 percent, respectively. However, most of the direct and imported investments come from EU countries. This means they are laying the groundwork for a modernized and competitive national economy. Europe is also an important sales market for many Ukrainian big business people. For this reason, big business is very much interested in a prompt and active cooperation with the EU because this means not only profits, but also investments in the fixed assets and the arrival of European standards of work to Ukraine. Therefore, Ukrainian big business should become the main ‘lobbyist’ of an EU free trade area and modern-day European standards in Ukraine.”
